SPDR S&P Retail ETF (NYSE: XRT) has a high correlation with SPY, and weakness in retailers would be a warning sign that the broad stock market is vulnerable to a sell-off. On Friday, however, traders' concerns shifted away from retailers to the broader economy. The unemployment report showed that job creation stalled in December, and the weakness was generally considered to be bullish for stocks, bonds and gold.

As usual, traders trying to anticipate what the Federal Reserve will do seemed to drive the market. Last month, the Fed announced that it would begin tapering its pace of bond purchases starting in January and would continue scaling back as long as the economic news was consistent with improvements in the job market. December's employment data created uncertainty, and while one month is not a trend, the employment situation is now more uncertain than it was when the Fed decided to taper.

If the Fed continues easing, that could be bullish for stocks. Since QE began, the stock market has surged and some analysts have noted a relationship between the amount of easing and the gains in stock prices.

If the Fed doesn't continue easing, stocks could be fairly valued. Based on 2014 estimated earnings from Standard & Poor's, the S&P 500 is trading with a price-to-earnings (P/E) ratio of 15. Early estimates tend to be optimistic, and it is likely that full-year earnings will be lower than forecast. If the forecast is correct, a P/E ratio of 17 would provide a price target of $200 for SPY, almost 9% above recent price level. Gains beyond that could depend on traders ignoring the fundamentals, which is always possible but could lead to a bubble.

The importance of earnings will come into focus over the next few weeks. Earnings season kicked off last week with Alcoa (NYSE: AA) missing expectations. If disappointing news continues, stocks are likely to sell off.

Gold Volatility Could Be BullishSPDR Gold Shares (NYSE: GLD) gained 0.81% last week, a small move that masks the amount of volatility seen near the open last Monday. GLD fell 2.7% and fully recovered in less than five minutes. The volatility was also seen in the gold futures market, and there was speculation that the move was caused by a trader's error.

The fact that gold quickly recovered from a possible mistake is a positive sign for the market. In the stock market, flash crashes have triggered stop-loss orders and those orders accelerated the decline in prices. GLD's rapid recovery last week shows that there wasn't a great deal of selling due to stops and that the current shareholders of GLD seem to be long-term investors in gold.

In 2013, GLD reduced its holdings by about 40%. If selling pressure has declined, GLD should be able to hold support, and although short-term price declines are possible, GLD actually looks bullish at this point.

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